Price gougers let's coin a phrase are sellers who sensibly adjust the price of goods upward in response to a spike in demand, in order to minimize hoarding and accommodate as many customers as possible until fresh supplies become available.
Price gouging is immoral. Price gauging is indispensable. Yet in times of stress, officials routinely confuse them. Prudent price hikes are demonized as gouging, so merchants avoid trouble by leaving their prices unchanged. The results? Shortages, suffering, and even more stress.
If you've been to a supermarket lately, you've seen those results up close and ugly.
Last Friday I went to the store to pick up a few groceries, a weekly errand. Hand sanitizer and disinfecting wipes weren't on my list, which was just as well, since the supermarket's entire supply was gone. Laundry bleach was on my list, and I managed to snag the last bottle on the shelf.
When I went to the dairy case for the gallon of milk I get each week, I found the aisle mobbed by customers. But it wasn't only pantry staples and disinfecting products that were being hoarded. It was pretzels, sports drinks, and fresh meat, too.
In light of the coronavirus pandemic, some of this consumer frenzy is understandable, especially the demand for hand sanitizer. Some of it is irrational panic buying: Nobody needs a year's supply of toilet paper. But whether or not customers have good reason for denuding the shelves at Stop & Shop, Wegman's, or CVS, sellers have an excellent reason to adjust their prices upward to account for soaring demand: Failing to do so leaves shelves bare, and countless would-be customers are turned away empty-handed.
As soon as it became clear that the coronavirus emergency was driving consumers to load up on supplies, sellers should have been raising their prices. That would have deterred consumers from buying more than they really need, while increasing the incentive to bring more supplies to the marketplace.
But as soon as the crisis erupted, politicians immediately began signaling retailers not to raise their prices. Massachusetts Attorney General Maura Healey urged the public to report "instances of price gouging" to her office. So did attorneys general in Texas, Kansas, New Jersey, and elsewhere. The US Justice Department warned it would go after "bad actors" who "fix prices" for health products such as face masks and respirators. Senator Ed Markey sent a letter pressing Amazon CEO Jeff Bezos to root out "coronavirus-based price gouging" by third-party sellers. House committee chairs, The Washington Post reports, proposed including "anti-price-gouging measures" in the next coronavirus relief bill.
Yet what the market needs, especially in an emergency, is not more price controls, but none at all. Anti-gouging laws are misguided and "should be scrapped entirely," Harvard economist Jeffrey Miron tells me.
For three reasons: First, they ensure that scarce resources are allocated "based on the arbitrary luck of who gets there first." Second, such laws "eliminate any incentive for reducing use or increasing production" keeping prices well below what the market will bear invites shoppers to buy as much as they can while doing nothing to encourage manufacturers to ramp up production. Third, they lead to illegal black markets, with unscrupulous dealers operating under the table, taxes going unpaid, and consumers left unprotected.
None of this is to defend greed or to minimize compassion. We can all agree that the Tennessee man who amassed a stockpile of more than 17,000 bottles of hand sanitizer in order to sell them at a steep markup is no one's idea of a good citizen, a model businessman, or a kindly soul. But the vast majority of merchants are not trying to gouge anyone least of all their customers, whose good will they crave. Having to face would-be buyers with empty shelves is a terrible way to do business. When governments pressure sellers to keep prices artificially low, the result is to push demand artificially high. That only adds to the misery of people already in dire straits.
Better by far to let businesses use their own judgment to gauge the right price for their products. That way, fewer buyers get left in the lurch and more of us have what we need to get through this crisis.
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